Is the USD the New Growth Story?

A range-bound night of trading is expected for most majors with the exception of the pound, which was shellacked from the start of the European open on selling flows from Middle East accounts, tumbling below 1.6300. The euro, on the other hand, was relatively steady, rising off the New York session lows, but capping at the 1.4000 level for the time being.

On the economic front, the only release of note was the EZ industrial production orders, which slipped -1.0% versus 0.0% prior, producing yet another downward surprise this week. We have been highly dubious of EZ economic data as of late, noting that while sentiment gauges continued to show improvement, actual production metrics have lagged or even reversed course. This divergence does not bode well for the currency in the long run, as the recovery story appears to be have stalled. Next week, the market will get a glimpse of German retail sales and unemployment data, which should provide a much better view of the actual dynamics of the EZ economy. If those numbers disappoint as well, market enthusiasm for euro longs could begin to evaporate very quickly.

On an otherwise uneventful night, traders continued to digest the SNB intervention moves in EUR/CHF. We weighed in on the trade with a view here, noting that the rise in the pair may be short lived. Tomorrow, the Swiss release the KOF index of leading indicators, the most important economic report from the mountain economy, and should the number print better than expected, it may provide further fuel for a retracement in the franc. For the time being, 1.5400 remains the key level of resistance and unless risk appetite flows return with a vengeance, the pair is likely to remain at current levels and drift lower in the next several days.

In the North American session, the calendar remains quiet, with only the final revision of the Q1 GDP on the docket. The market expects a reading of -5.7%, but given the fact that the GDP data is so dated, the impact on trade is likely to be minimal unless the print is -6.0% or more. Additionally, the weekly jobless claims could also prove market moving especially if the number drops below the psychologically important 600K mark. Were that to happen the knee jerk reaction may favor the euro on risk flows, but it will be interesting to see if that dynamic is maintained for the rest of the day. With US data improving and EZ data lagging, the turn to the dollar as a growth story may be the next theme to take hold.